One Bad House Can Bring Down Value of Whole Neighborhood
QUESTION: Our home is located in a middle-class neighborhood of nicely maintained houses, except for the house across the street from ours. It is a rental house. The owner lives out of town and doesn’t care what the tenants do as long as they pay the mortgage and property taxes. The house is a dump. The lawn is never mowed. It looks awful. But no laws are being violated so the city says they can’t do anything. As we plan to sell our home in a few months, do you have any ideas for us as this house will hurt our home’s salability? We’ve tried talking nicely to the tenants but they aren’t very polite.
ANSWER: Unfortunately, just one bad house like the type you describe can drag neighborhood property values down. Any prospective buyer of your home will either not make a purchase offer on your home or will make a low offer to compensate for the eyesore across the street.
Several years ago, I had a similar situation. When I was sure the neighbors weren’t home, one day a friend and I mowed their lawn and made their place look sharp in front. After that, they did a better job of keeping up their house. They even painted it. Since they never learned who mowed their lawn, they got the message the neighbors really do care. If readers send in any other ideas for your problem, I’ll run them here so we all can learn how to handle your frequently encountered problem.
When Is the Right Time to Sell a Home?
Q: You’re always writing it’s a great time to buy a home. But when is the right time to sell? My wife and I have owned our home almost 30 years. We raised our two sons here. But the last few years we’ve noticed more renters moving into the neighborhood and the home maintenance seems to be declining. Many of our older neighbors have died. The nearby high school is a drug depot. Do you think we should sell and get out?
A: Yes. When you see signs of serious neighborhood decay, that’s the time to sell your home before it’s too late while you can still get a fair price.
When It’s All Right to Accept Quitclaim Deed
Q: We are trying to buy our first home but it’s turning out to be a nightmare. The problem is not the house. We love its old-world charm and the location couldn’t be better for us. The sellers are the troublemakers. It is a probate sale. Two sisters and a brother inherited the house. Apparently they hate each other and will only speak to each other through their three attorneys. Their late mother was very wealthy and each sibling is afraid the estate won’t be divided equally. But our problem is each one will only sign a quitclaim deed. Our attorney says this indicates there is a title problem. Should we go ahead or forget about buying this house?
A: Your situation is not uncommon in probate sales. If it’s any comfort, divorce sales can be even worse.
I’ve never been able to understand why probate sales are often so difficult. The heirs paid absolutely nothing for the property, yet they act as if they are entitled to squeeze every dollar out of the property. Also, their cost basis is the market value on the date of the death so they usually have no profit tax to pay.
However, there is nothing wrong with receiving a quitclaim deed from each heir. Such a deed conveys whatever legal interest they owned. It could be fee simple absolute. Or, if they had no title at all, a quitclaim might convey nothing.
For example, if I give you my quitclaim deed to the Empire State Building, you will receive absolutely nothing because I don’t own that building.
Your best protection when receiving a quitclaim deed is to insist on also obtaining an owner’s title insurance policy. If title proves to be defective on the quitclaim deeds, then you have a claim against the “deep pocket” title insurance company. Regardless what type of deed you receive, if you also receive an owner’s title insurance policy you are well-protected.
Consider the After-Tax Mortgage Interest Rate
Q: Our credit is not the best. As you often suggest, before making an offer to buy a home, we needed a mortgage commitment. With our bad credit, we went to a mortgage broker. She found us a lender who will make us a home loan at 9.5% fixed interest rate. I realize this is high. However, in our situation should we take it?
A: A 9.5% mortgage interest rate is higher than you could obtain if you had excellent credit. However, consider your after-tax interest rate. If you are in the 28% tax bracket, after considering your income tax savings, that mortgage will only cost you 6.84 % interest. That is a bargain. Grab it.
Don’t Be Afraid to Borrow Funds for Fixer
Q: Each year my wife and I set aside about $25,000 for investment. In the past, we bought mutual funds and common stocks. We’re doing OK but nothing spectacular. This year I think we should follow your advice and buy a run-down fixer-upper house. There is one for sale a few doors away from our home. But the problem is we will have to borrow almost $100,000 to finance the purchase of this house. My brother (a plumber) and I can easily fix-up this house to make it worth $175,000. Would I be making a big mistake to borrow $100,000 to make a possible $75,000 profit?
A: Don’t be afraid to borrow money to earn money. The situation sounds like a fantastic fixer-upper house. Unless your fix-up costs will be too high, go for it. Being able to hire tradesmen at reduced prices makes your potential profits all the more attractive.
No Estate Tax Due on Assets Left to Spouse
Q: My husband is dying of emphysema. His doctor estimates he only has a few weeks left. My problem is our house is held in my husband’s name alone. He owned it before we were married 38 years ago but he never added me to the title. It is free and clear. His will leaves everything to me. I estimate the house is worth about $250,000. When my husband passes on, how much estate tax will I owe on the house?
A: Zero tax. All assets left to a surviving spouse pass free of federal estate tax, regardless of the total amount. However, when you die, Uncle Sam will be waiting to collect estate tax if your estate is worth more than $600,000.
